Boards should reflect public float – Purisima

The number of independent directors in a listed firm should be representative of the company’s public float, a Cabinet official said.

“Minority is a major component of the ownership of a company. The board must correspondingly reflect that ownership,” Finance Secretary Cesar Purisima said at a Shareholders’ Association of the Philippines (SharePHIL) meeting on Monday.

“In the Philippines, we have two independent directors [per company]. In other countries, the representation of the board represents the ownership of the company. We’re not yet there. We are still in the infancy in the journey to strong, stable, and mature capital markets,” he added.

According the revised Corporate Governance Code, covered companies – which include listed firms – should have at least 2 independent directors or any such number that they comprise 20 percent of the board. Company boards should comprise at least 5 and not more than 15 members, all of whom should be elected by stockholders.

“In a more diverse market, the minority becomes more important. With the companies in the [Philippine Stock Exchange] index, average [public ownership]is close to 40 percent. The market is quite wide with companies [of]around 10 percent [public ownership], but then others are around [that are]more than average,” Purisima said.

Listed firms are required to maintain at least 10% public ownership.

“The role of the board of directors in corporate governance is very important. It is something we’re trying to understand and learn … If we are to be more integrated with regional and global capital markets, we have to see it through that so that we can establish the role of the board, because this is where investors look into,” Purisima added.

“When you refer to directors as independent, they should be independent in appearance and substance. They have the ability to protect shareholders’ interests and bring them to discussions of the board.”

He also cited Department Order 54-2015 detailing the qualifications of an independent director as well as mandating that they serve for a maximum of five years and be re-elected for another term, instead of the 10-year tenure previously allowed.

Purisima said changes to rules governing the appointment of independent directors are in line with a goal to become competitive and qualify for a planned link-up of Southeast Asian stock exchanges.

SharePHIL president Francis Lim, a former PSE president, said Purisima’s proposal should be studied thoroughly.